Global Trade Law Bloghttps://www.globaltradelawblog.com
Timely Updates and Analysis on Key International Trade Law IssuesTue, 21 May 2019 17:42:12 +0000en-UShourly1https://wordpress.org/?v=4.9.10Hua-Wait a Minute: Entity Designation Affects Non-U.S. Manufacturers’ Exports to China Tech Gianthttp://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/01u8BIaEhG0/
https://www.globaltradelawblog.com/2019/05/21/entity-designation-exports/#respondTue, 21 May 2019 16:44:13 +0000https://www.globaltradelawblog.com/?p=2732Continue Reading]]>On May 16, 2019, a sweeping U.S. export control rule went into effect that will impact the U.S. tech industry, but may also create an outsized risk for non-U.S. manufacturers. The rule, issued by the U.S. Department of Commerce, Bureau of Industry and Security (BIS) adds Huawei Technologies Co., Ltd. (Huawei) and 68 of its affiliates to the Entity List. That designation effectively prohibits the export, reexport, and retransfer of all U.S.-origin “items subject to the Export Administration Regulations (EAR)” to those entities. The designation arises from a U.S. government finding that the restrictions are warranted on U.S. national security and foreign policy grounds.

The De Minimis Rule

For companies in the United States, the effect of the rule is straightforward: virtually all items manufactured in the United States are “subject to the EAR.” (The biggest exception is military items, which are already subject to a total export prohibition for China under the International Traffic in Arms Regulations.) But the seemingly straightforward Entity List prohibition becomes a little more complicated for manufacturers outside the United States. The source of that complication is the de minimis rule.

Effects on Non-U.S. Manufacturers

Under the de minimis rule, U.S. export controls are applied to certain foreign-made products. The de minimis rule provides that a foreign-made commodity is subject to the EAR if that foreign-made commodity contains more than 25% controlled U.S.-origin content by value. The rule does not count so-called EAR99 items or other items that do not require a license (NLR items) to the final destination. That means that some low-level U.S.-origin software, technology, or commodities do not count in the 25% de minimis threshold.

We won’t delve into the details here, but if you make a product outside the United States that incorporates U.S. parts, components, or technology, or bundles U.S.-origin software, U.S. export controls may apply to the export of your product from outside the United States to Huawei in China. If the relevant controls apply, the foreign manufacturer (and any other person wherever located) is prohibited from exporting the item to Huawei.

Turning the Screws

For now, the application of the de minimis rule is straightforward: foreign made product with 25% or less controlled U.S.-origin content – no EAR, no worry.

Currently, the 25% de minimis threshold does not count U.S.-origin content that does not require a license to the item’s final destination. Consider, however, what would happen if, for exports to Huawei, BIS took into account that all U.S.-origin content would require a license to Huawei. That would mean counting EAR99 and NLR items in the 25%. That would restrict an enormous number of foreign-made goods that use commercial, off-the-shelf U.S. parts and technology, from being sold to Huawei.

BIS has not published guidance or clarification on how the Entity List additions will intersect with the de minimis rule. However, we understand that, in the past, BIS and the Office of Export Enforcement have considered regulations interpretations that would prevent companies from exploiting the de minimis to “laundering” U.S.-origin input items in non-U.S. end-products.

The Takeaway

At this point, non-U.S. manufacturers that sell to Huawei or other designated entities would do well to assess the amount of U.S.-origin content they use in their products. If the value of that content, including U.S.-origin technology and software, approaches 25%, those companies would be well advised to carefully account and record the U.S.-origin value in that product. It is likely that BIS will be looking carefully for U.S. items and technology being reexported to the newly designated entities.

Technology investment is getting harder. A few years ago, strategic and private equity technology acquisitions, multinational joint venture creation, and cross-border R&D collaboration were not only relatively straightforward, they were an economic engine driving the global technology economy.

Now, U.S. export controls, technology transfer restrictions, CFIUS and other investment reviews, and tariffs and non-tariff barriers have begun to limit the options for successful transactions in the tech sector. In this article, we examine the new and emerging challenges and suggest a strategies for navigating the changing currents of global trade and politics to get your deal done despite the shifting landscape.

New Threats to Technology Investment

CFIUS and FIRRMA

In 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) broadened and strengthened the powers of the U.S. Committee on Foreign Investment in the United States (CFIUS) (discussed here). In November of last year, the Committee implemented a Pilot Program (reported on here) imposing mandatory filings for certain investments in the united states and providing for penalties up to the amount of the proposed transaction. Technology was a major focus of the pilot program, including Nanotechnology, Biotech, Energy Generation and Storage, Aerospace, Semiconductor Design and Manufacture, and Aerospeace, among many others.

The sudden increase in CFIUS power and the threat of potential penalties have potential investors reviewing their proposed transactions and many searching for targets in other countries.

International Investment Review

While U.S. Foreign Direct Investment (FDI) restrictions have caught the most business headlines, new and reinvigorated laws are cropping up around the world. As we report here dozens of countries are implementing or considering new FDI reviews and restrictions. That includes an EU-wide directive providing the framework for all 28 member states to implement their own FDI screening regimes.

Tariffs and Non-Tariff Barriers

In the United States, the Trump administration has imposed tariffs on imports of equipment in the burgeoning solar energy industry (among many other sectors). That system of tariffs has forced major alternative energy investors to reconsider the sourcing and logistics for their projects.

Meanwhile, the EU “Tech Tax,” aimed at digital platforms that earn a significant amount of their revenue in Europe, has been an on-again, off-again effort. However, regardless of whether that tax is imposed, the EU competition authority has hammered Google with three separate penalties and is reportedly investigating Amazon. The EU Commissioner for Competition has suggested that the EU should not aim to break up the tech giants, but focus on regulating their use of data.

Individual company targeting

Narrowing in from moves against entire industries, the United States and others are targeting individual companies they see as threats to national security. In April 2018, the United States added Chinese telecom major ZTE to the Denied Parties List, effectively prohibiting exports of U.S.-origin items to ZTE. The Denied Party designation was later lifted, but regulators assessed enormous penalties against the company, and the settlement left open the likelihood that even a small future violation of export controls or sanctions by ZTE could result in redesignation of the company as a denied party.

In addition, the United States has issued new government procurement restrictions on the use of software and equipment from the Russian firm, Kaspersky, and five Chinese companies, including ZTE, Hytera, and Huawei. A new statute also directs the Department of Defense to limit the use of Huawei and ZTE by U.S. universities and other researchers funded by the federal government. The U.S. Department of Justice has also filed sweeping criminal charges against Huawei. Those charges have led to the arrest and an extradition request of the company’s CFO and daughter of the company’s founder, who is currently being detained in Canada.

The United States is not alone in its Huawei wariness. Since August 2018, Australia, New Zealand, Japan, the UK, Germany, Malaysia, Canada and Taiwan have raised concerns about Huawei. Some have taken action to restrict or block Huawei from certain business sectors in their countries.

Emerging Threats to Technology Investment

Chinese Technology Restrictions

China is not taking it lying down. Huawei is, effectively, China’s state telecom tech company. In anticipation of even further restrictive U.S. actions against Huawei, the company has made a concerted effort to relocate certain Asian suppliers to the PRC. We anticipate that China will continue to take further actions designed to blunt the effects of U.S. restrictions.

U.S. Technology Controls

As we reported recently in Risk & Compliance Magazine, a wave further of U.S. controls on “emerging technology” is due in the coming year. Those controls will disrupt the disruptors, placing greater limits not only on who can receive U.S. technology exports, but also on the disclosure of technology to foreign nationals even within the United States. The new “emerging technology” controls will impact technology research and development, the export and logistics planning of tech companies, and investments, mergers, and acquisitions in the tech world.

Addressing the Current and Coming Changes

These changes, taken together, present a major challenge to the system of international technology investments and innovations that the world used to take for granted. However, planning your investment with an understanding and foresight of present and coming global political changes improves the chances of success. There are genuine policy debates behind the changes, which we must leave for another article. Meanwhile, we’ll be monitoring the regulatory changes around the world and reporting on them here.

]]>https://www.globaltradelawblog.com/2019/04/10/threats-technology-investment-from-global-politics-how-to-succeed-as-borders-tighten/feed/0https://www.globaltradelawblog.com/2019/04/10/threats-technology-investment-from-global-politics-how-to-succeed-as-borders-tighten/INTERNATIONAL TECH INVESTMENT ISSUE – Investments With Borders: CFIUS-Style Foreign Investment Review Goes Globalhttp://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/zzlMAZO5C7M/
https://www.globaltradelawblog.com/2019/04/10/investments-foreign-investment/#respondWed, 10 Apr 2019 15:39:34 +0000https://www.globaltradelawblog.com/?p=2666Continue Reading]]>The Committee on Foreign Investment in the United States, CFIUS, is the U.S. government agency that conducts national security reviews of foreign direct investment in the United States. The CFIUS rules have been significantly tightened over time, which has created major obstacles, particularly to technology investments, and particularly for Chinese investors.

But as investors turn elsewhere looking for more a more streamlined investment process, they may be disappointed. Around the world, countries are creating new laws, or dusting off old ones, to allow their governments to examine and restrict foreign investment.

This article presents an overview of the emerging (or reemerging) foreign investment legal regimes in the EU – including domestic laws in France, Germany, Italy and the UK – Canada, Norway, South Korea, Japan, Australia, and New Zealand. For brevity in this article, we summarize our analysis in graphics and tables. However, we recommend that investors obtain a thorough legal analysis from local counsel before proceeding with an investment in any of the countries discussed here.

1. CFIEU? The Europe-Wide Investment Review Regulation.

“This is the first time that the EU is equipping itself with such a comprehensive framework, while its major trading partners already have comparable rules in place.”
– European Council Press Release

On March 5, 2019, the European Council adopted a Regulation establishing a framework for screening foreign direct investments in the EU, based on the proposal of the Commission (as we reported here). The EU framework will be a coordinating mechanism among EU Member States as each ones of those States will keep, amend, or create, their own Foreign Direct Investment (FDI) review systems.

Jurisdiction. The Regulation allows for Member States and the Commission to cooperate on incoming foreign direct investment affecting security and public order, involving factors including the following:

Projects and programs of Union Interest. The Regulation lists several EU funded projects and programs which may be relevant for security and public order, and which will deserve a particular attention from the Commission. That list includes for instance Galileo, Horizon 2020, TransEuropean Networks and the European Defence Industrial Development Programme. The list will be updated as necessary.

Entry into force. A transitional period of 18 months will ensure that Member States and the Commission put the necessary resources and tools in place to implement the Regulation. Some Member States may also use this time to adapt national frameworks, where needed.

2. FDI Review in EU Member States

At press time (April 2019), 14 EU Member States currently have in place national FDI review mechanisms. Several countries are reforming their current systems while others are adopting completely new ones. We focus our discussion here on existing and reinvigorated screening mechanisms in France, Germany, Italy, and the UK. Those regulations are the most comprehensive and stringent, so a higher percentage of transactions are likely to be subject to review in those countries, as illustrated here.

Figure 2: Investment Screening Legislations in the EU.

We use the table here to summarize the essential points of the French, German, Italian and British FDI review mechanisms.

Click image to view pdf.

3. A Special Mention for Norway

On January 1, 2019, Norway’s new investment screening regime entered into force. The new law empowers Norwegian authorities to screen and veto investments in Norwegian businesses on grounds of national security.

The law is not limited to companies in specific sectors. The authorities will have the power to issue such decisions in respect of any company that:

(i) is processing classified information;
(ii) has access to information or information systems deemed essential to national security interests;
(iii) owns physical assets or infrastructure deemed essential to national security interests; or
(iv) is involved in activities deemed essential to national security interests.

If the target company is involved in any of the above activities, foreign investors who wish to acquire a stake of one-third or more of the share capital, assets or voting rights would have to consider a filing submitted to the government ministry responsible for the sector in which the target company is active.

If an acquisition engenders a significant risk to national security interests (broad definition settled by the law, i.e. national financial stability or autonomy), the responsible ministry may block the transaction, or decide that the investment may only be implemented subject to conditions, just like the CFIUS would do.

4. Key Aspects of Foreign Direct Investment Review in other major Economies

In the table below, we summarize key elements of the FDI review systems for Australia, Canada, Japan, New-Zealand and South-Korea.

Click image to view pdf.

Conclusion

The patchwork of FDI regulations is varied and shifting. We will monitor and report the changes in this blog. However, we recommend that investors seek expert advice to make sure their investment in the above-listed countries and others can be made safely and successfully.

*Julien Blanquart is an intern at Sheppard Mullin.

[1]Eg. energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure and sensitive facilities as well as land and real estate crucial for the use of such infrastructure.

]]>https://www.globaltradelawblog.com/2019/04/10/investments-foreign-investment/feed/0https://www.globaltradelawblog.com/2019/04/10/investments-foreign-investment/INTERNATIONAL TECH INVESTMENT ISSUE – A Wave of Export Regulation to Hit US Technologieshttp://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/sPW0DGgrAhA/
https://www.globaltradelawblog.com/2019/04/10/export-regulation-us-technologies/#respondWed, 10 Apr 2019 14:24:54 +0000https://www.globaltradelawblog.com/?p=2714Continue Reading]]>This article originally appeared in Risk & Compliance magazine in the UK, a publication of Financier Worldwide. The piece includes UK spelling and grammar.

Key Takeaways:

A wave is coming. An enormous wave of regulation will soon crash on Silicon Valley, Boston and other tech centres around the United States, and very few people have their surfboards ready.

Major technologies in exciting emerging fields (among them, biomedicines, virtual reality, and robotics) will soon be subject to strict export controls that will limit who can receive the technologies, who can use them, and even who can research them.

Forthcoming export controls will disrupt logistics planning, information sharing, R&D, and acquisition strategies for companies in the United States and all around the world.

A swell on the horizon: the coming controls

In the past, export controls and other regulations have tended to lag a step or two behind the times. That trend has accelerated with the pace of technological advancement. As a result, for many years, commercial technical innovations in fields like data analytics, microprocessors and navigation could be freely exported without significant restrictions because they had simply gone beyond what regulators could think to name in their regulations. As long as the items were not designed for military applications, and no significant encryption technology was involved, new ideas developed in the United States were simply unaccounted for by the export controls in the US Export Administration Regulations (EAR).

However, the US Department of Commerce, Bureau of Industry and Security (BIS) is about to make up a lot of ground in a single, large leap. The tsunami it will unleash in its regulatory overhaul will splash down on sectors like biotech, computing, artificial intelligence, positioning and navigation, data analytics, additive manufacturing, robotics, brain-machine interface, advanced materials, and surveillance.

Controlling the break: commenting on the rules before they take effect

BIS is in the process of writing the regulations. Since the regulations are not yet set in stone, you may formulate and submit the arguments to BIS that may help limit the impact of these regulations on your business.

On 19 November 2018, BIS published an invitation to comment on the criteria for establishing new export controls on what it calls “emerging and foundational technologies”. The new controls are authorised under the Export Control Reform Act of 2018 and the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).

Interested parties submitted public comments on the proposed rule before 10 January 2019 deadline.

This rule was an Advance Notice of Proposed Rulemaking (ANPRM), so before finalising the regulations, BIS will likely publish a Notice of Proposed Rulemaking, again inviting interested parties to comment on the proposed regulations. In addition, BIS will issue a separate ANPRM regarding identification of foundational technologies that may be important to US national security.

These rulemakings represent your opportunities to be heard. There is no guarantee that public comment will alter the course of the new restrictions, but it may be worth a try to argue for changes that may help preserve your options for the future.

Feeling the curl: understanding the coming controls

The controls are not yet in final form so we cannot predict in detail the implications of those controls. However, we have seen and ridden waves before. Based upon our experience and the information BIS provided in its request for comments and industry chatter, we can provide the following information.

General implications. If your company creates technology or products in an emerging technology sector, new export restrictions will not only limit who can receive your exports, but will also restrict the disclosure of technology to foreign nationals even within the United States. If the controls follow the pattern of most EAR controls, the export of products and the disclosure of related technology and know-how will require licences, depending on the destination, end-user and end-use of the product or information. Where technologies are already widely available outside the United States, BIS may not be able to restrict that technology.

Implications for collaboration. Depending on the criteria BIS develops for these controls, persons who are not US citizens or green-card holders may need licences to participate in researching and developing some of these emerging technologies.

Implications for exports. As the new regulations are developed, exports of your products, parts and components in these sectors may require export controls. This may be true for final shipments as well as for movements throughout your manufacturing supply chain. For example, if your logistics chain includes fabrication in Mexico, or assembly, testing and packaging in China, you may need to plan for the potential impacts on your manufacturing process.

Implications for mergers, acquisitions and investments. The emerging technology sector continues to see historic volumes of investment and M&A activity in a vibrant US economy. The new regulations will also affect US national security review of foreign investments in these sectors. Specifically, when the list of technologies is finalised, many types of foreign investments in these sectors (including not only outright acquisitions of US companies, but also certain minority investments) will be subject to review by the Committee on Foreign Investment in the United States (CFIUS). CFIUS has the power to halt or unwind a deal, and the power to impose restrictions on a foreign acquirer’s access to technology. This development has the potential to radically alter the structuring, timing and valuation of foreign investments in these sectors.

Getting ready to ride: planning for the controls

Recently, we have seen companies caught off guard by the rapid pace of regulatory change in the Trump administration. This has been the case even when the president and the administration have clearly signalled policy changes in advance (as in the case of the immigration ban, tariffs on China and changes to NAFTA).

BIS’s announcement of these forthcoming rules signals a real and substantive movement toward limiting foreign access to leading-edge technologies. Companies in the affected sectors could gain an advantage over their competition if they act early. They can paddle a bit ahead and ride this coming wave, rather than tumbling in its wash.

Your company may wish to consider adjustments to your research, manufacturing, export and investment strategies to handle the forthcoming changes. In our view, this wave of regulation will have a big impact on US advanced technology sectors. Companies should continue to monitor and consider submitting comments and implementing internal controls to account for the upcoming changes.

]]>https://www.globaltradelawblog.com/2019/04/10/export-regulation-us-technologies/feed/0https://www.globaltradelawblog.com/2019/04/10/export-regulation-us-technologies/Clear for More Takeoffs: Now is the Time to Have Your Voice Heard on New Satellite and Launch Regulationshttp://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/G9Lktecy7hw/
https://www.globaltradelawblog.com/2019/03/19/satellite-launch-regulations-usml/#respondTue, 19 Mar 2019 17:33:28 +0000https://www.globaltradelawblog.com/?p=2660Continue Reading]]>On March 8, the U.S. government signaled regulatory changes that may create new opportunities for international collaboration on satellite development, global sales of satellite and launch equipment, and even sharing launch technology.

. . . and the Government wants you to weigh in.

What was the announcement?

The U.S. Departments of State and Commerce have released an Advanced Notice of Proposed Rulemaking (ANPRM) that requests comments and opinions from the public on what changes those departments might make to satellite export controls. Specifically, the Departments are focused on Categories IV (Launch Vehicles) and XV (Spacecraft) of the United States Munitions List (USML), which place those items under control of the International Traffic in Arms Regulations (ITAR).

The stated objectives of reviewing and revising the USML and CCL are: (1) to ensure that USML categories do not inadvertently control items in normal commercial use; (2) account for developments in technology; and (3) to properly implement U.S. national security and foreign policy objectives.

Based on the government’s review of the USML and CCL in light of the comments it receives, the government may remove certain Launch Vehicles, Spacecraft, or related Technical Data from ITAR control and placed under the less restrictive commercial controls of the Export Administration Regulations. In the past few years, the U.S. government has periodically reviewed controls related to satellites, most notably during Export Control Reform in 2014 and 2017, as we discussed here and here. That reform placed many satellites and related technologies under less restrictive controls.

What does it mean?

This means that you have the chance to make your case for reduced controls on items that are critical to your business. If you are in the satellite manufacturing, design, service, sales, or launch industries, you have an opportunity to open up your markets and resources by making a case to the regulators that certain items and technology should be allowed to move more freely around the world.

What we have increasingly seen in the satellite industry, particularly as satellite technologies develop in this new era, is that many technologies that should likely have lesser controls because the technology is commercial in nature are captured under the USML because of current definitions. If you are in the emerging satellite tech industry, this rulemaking should be of high interest. You might be developing technology that will not come to fruition for a few years, but if currently captured under ITAR controls, your ability to develop that technology with non-U.S. persons or in collaboration with smart minds abroad is hindered because of U.S. export controls.

What can I do?

Before April 22, 2019, respond to the request to comment. The window to put in your opinion early and clearly is limited to a few weeks. So check with counsel or advisors on how to submit the most effective comments and get them in to the regulators to engage in this important conversation.

Focus on the Key Questions. The ANPRM asks nine questions, any or all of which may play a part in your response. However, Questions 2, 3 and 9 will be of particular interest to those who would like to reduce the regulatory burden of their work in the satellite industry.

Q2 – Are there specific defense articles described in the referenced categories that have entered into normal commercial use since the most recent revision of that category? If so, please include documentation to support this claim.

Q3 – Are there specific defense articles described in the referenced categories for which commercial use is proposed, intended, or anticipated in the next five years? If so, please provide any documentation.

Q9 – What are the cost savings to private entities from shifting control of a suggested specific item from USML to the CCL?

If these proposed rules may impacts your business, consider providing your valuable input to the government and, as appropriate, consult with an advisor on how to draft and position your comment to be most effective.

Stay Informed. As always, we will keep you updated on developments as this rulemaking progresses.

]]>https://www.globaltradelawblog.com/2019/03/19/satellite-launch-regulations-usml/feed/0https://www.globaltradelawblog.com/2019/03/19/satellite-launch-regulations-usml/The New Suits of Havana: How Non-U.S. Companies May Soon Be Sued for Their Business in Cubahttp://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/uUdSDTBNNN8/
https://www.globaltradelawblog.com/2019/03/19/cuba-helms-burton-title-iii/#respondTue, 19 Mar 2019 17:07:32 +0000https://www.globaltradelawblog.com/?p=2657Continue Reading]]>Picture your company being hauled into U.S. court to defend litigation for your Cuba business that is lawful in your home country. That is the scenario that the Trump administration and Cuba hawks in Congress are aiming to arrange. The Trump administration is preparing to part the practice of past presidents to allow U.S. persons to sue non-U.S., non-Cuban companies for doing business in Cuba, dealing in property seized by the Cuban government since the 1959 revolution.

A New Right of Action on Cuban Business

Title III of the Helms-Burton Act (aka the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996) provides for U.S. citizens to sue foreign companies and individuals over commercial property confiscated by the Cuban government. However, since 1996 every president has waived the provision of grounds for suit because of the objections of the international community.

On March 4, 2019, the State Department announced it would partially suspend the waiver of Title III of the Helms-Burton Act, opening the possibility of certain lawsuits against Cuban entities. On April 17, the possibility of lawsuits against any foreign company for dealings in Cuba may be a reality.

Beginning earlier this year, we saw hints that the Trump administration would take a different path from its predecessors. On January 16, the Secretary of State reported to Congress that it would only suspend Title III for 45 days (rather than the customary 6 months) beyond February 1. During those 45 days, the State Department conducted a review of the right to bring action under Title III in light of the national interests of the United States and efforts to expedite a transition to democracy in Cuba.

Effective March 19, 2019 until April 17, 2019, Title III will be partially suspended. During that period, U.S. citizens will have the right to bring action against Cuban entities and sub-entities on the State Department’s Cuba Restricted List. The Cuba Restricted List identifies entities and sub-entities under the control of Cuban military intelligence or security forces.

Lawsuits Against Non-U.S. Companies Doing Business in Cuba

In comments on the partial suspension of Title III, a senior State Department official noted the State Department will monitor the impact of the partial suspension and assess whether a further suspension is necessary thereafter.

If, after April 17, Title III is not fully suspended, non-U.S. companies doing business in Cuba may be sued for trafficking in property that was confiscated by the Cuban government on or after January 1, 1959. [1]

That may sound like old news, but there are some 2 Million Americans of Cuban descent in the United States, according to the Pew Research Center. Many of those families had their property confiscated before they immigrated or fled to the United States. You can be certain that those families remember the violation of their property, and that any number of American lawyers will be looking for opportunities to help those families bring suit against any company they believe they can show dealing with the Cuban Government.

Safeguards on Potential Cuba Sanctions

There are some limitations that may protect non-U.S. companies, but they may only be useful after a suit has been brought.

Title III claims are time-barred in that claims may not be brought more than two years after the trafficking has ceased to occur.

Certain jurisdictions, including Canada, Mexico, the United Kingdom, and the European Union, have enacted measures to counteract the possible effects of the Act that would render judgments under the Act unenforceable.

EC Regulation 2271/96 may limit discovery needed to support Title III claims.

For those reasons, even if the Title III is not suspended for non-Cuban companies come April 17, non-U.S. companies may have some recourse in law to avoid the worst of a potential suit.

We recommend that companies undertake an assessment of their Cuban business, closely monitor how the U.S. government treats this potentially powerful right of action, and consult with counsel on defense planning in the event that suits against non-U.S. companies are allowed on April 17.

We will continue to provide updates here.

[1]See Section 302 of the Helms-Burton Act. Section 4(13) of the Act defines “trafficking” broadly to cover any person who:

knowingly and intentionally sells, transfers, distributes, conducts financial operations or disposes in any other manner confiscated property or purchases, receives, holds, controls, manages or holds an interest in confiscated property; or engages in a commercial activity using, or otherwise benefits from, confiscated property; or causes, directs, participates in, or profits from, trafficking, or otherwise engages in trafficking through another person.

]]>https://www.globaltradelawblog.com/2019/03/19/cuba-helms-burton-title-iii/feed/0https://www.globaltradelawblog.com/2019/03/19/cuba-helms-burton-title-iii/Update from the Trump Trade War Front: Tariffs Will Not Increase March 2*http://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/NWEgwxmifuU/
https://www.globaltradelawblog.com/2019/03/01/trump-trade-war-tariffs-likely-increase-ustr/#respondFri, 01 Mar 2019 20:39:17 +0000https://www.globaltradelawblog.com/?p=2643Continue Reading]]>*This is an updated version of the February 21st blog post.

Key Takeaways:

Many U.S. companies continue to struggle under the burden of President Trump’s tariffs on imports from China. The President has postponed a scheduled March 2, 2019 deadline to increase the tariff rate on many Chinese products from 10 to 25 percent.

When we went to press with the first version of this article (February 21, 2019), negotiations between the United States and China had failed to reach an agreement that would prevent the tariff increase.

Now the President has decided that progress in those negotiations has been “substantial.” On that basis, he directed U.S. Trade Representative Robert Lighthizer to postpone the March 2 tariff increase until further notice.

In the spring of 2018, the Trump Administration began imposing tariffs after the USTR’s investigation into unfair Chinese trade practices. That investigation was conducted under Section 301 of the Trade Act of 1974. Section 301 focuses on whether unreasonable or discriminatory trade practices of another country pose an unreasonable burden on U.S. commerce. If so, the statute authorizes the president to impose (among other measures) tariffs on the goods of that country. A tariff is simply an extra tax on the importer, levied as a percentage of the value of the goods.

The investigation of China determined that its practices of intellectual property theft and forced technology transfer warrant Section 301 remedies. As a result, the Trump administration imposed tariffs on three successive lists of goods imported from China, now colloquially referred to as the List 1, List 2, and List 3 tariffs. Currently, there is no set expiration date for the tariffs.

The Wavering Path of Negotiations

The path of the President’s trade negotiations with China has been anything but smooth. The List 3 tariffs are currently set at a 10 percent ad valorem duty. Those tariffs have been in effect on $200 billion worth of Chinese imports since September 24, 2018. Those tariffs were set to increase to 25 percent on January 1, 2019.

Tariff increase delayed. On December 19, 2018, the eve of the impending deadline, USTR extended the effective date of the increase to March 2, 2018. That extension was intended to allow further negotiations between the United States and China to obtain the elimination of the harmful acts, policies, and practices identified in the investigation. The scope of those negotiations has reportedly expanded to include nontariff barriers, cyber intrusions, cybertheft, and agriculture.

Tariff increase back on. As of the end of January 2019, President Trump was showing no signs of backing down on the increase to 25 percent on List 3. Treasury Secretary Steve Mnuchin told reporters that China had offered over 1.2 trillion dollars in additional commitments on trade, but that the offer was rejected. China also offered to buy enough U.S. products to bring the United States-China trade deficit to zero. Negotiations continued, but no deal appeared to be in sight.

Trump teases a tariff increase delay. On February 12, 2019, President Trump indicated that he would consider extending the March 2 deadline, but emphasized he was not inclined to do so.

Tariff increase expected. A delegation led by Treasury Secretary Mnuchin and USTR Robert Lighthizer went to China on February 14, but those negotiations again yielded no agreement to stop the tariff increase. Negotiations are slated to continue the week of February 25 in Washington, DC. Nevertheless, taking into account the length of the current negotiations, the extent of the current tariffs, and the Chinese practices at issue, at the first time we went to press, we did not expect a resolution by March 2.

Tariff increase postponed. On February 28, 2019, USTR, at President Trump’s direction announced that it would postpone the date on which the rate of the additional duties will increase to 25 percent. The duties on List 3 are set at 10 percent “until further notice.” There is no guarantee, however, that the increase to 25 percent won’t be reinstated if negotiations do not progress sufficiently.

How To Cope with the Tariffs

Even with the Section 301 tariff increase postponed, the U.S. trade wars create a significant burden on some importers. We recommend a careful review of import activity to make sure you are in the best position to cope. Areas for review include the following:

Conduct a Harmonized Tariff System classification review. U.S. tariffs are imposed by reference to classification under the Harmonized Tariff Schedule (HTS). With its nuances in interpretative rules, changing categories, and extensive case law, HTS classifications are difficult and often prone to error. Sometimes a product may be misclassified under an HTS code included on the Section 301 tariff lists, and the correct HTS code is excluded from the lists. Companies may conduct an informal classification or request formal classification from Customs and Border Protection (CBP) to determine the correct HTS code. Of course, if you change your classification, you may expect intense scrutiny from CBP. So there is a high premium on getting HTS classification changes right.

Shift supply chains where appropriate. Depending on the product, some companies have been able to shift supply chains in order to source goods from countries other than China. In addition to the business considerations, further legal analysis is needed when shifting a supply chain to ensure compliance with a range of Customs laws. For example, a product made in China but exported to the United States from a middleman country is still subject to the Section 301 tariffs, and engaging in a scheme to evade Section 301 duties in such a manner is unlawful. Additionally, many products are subject to other so-called trade remedies, such as antidumping duties and countervailing duties. Those duties can dwarf the Section 301 duties, so be sure your supply chain shift doesn’t land you in the fire from the relative safety of the frying pan.

Determine if eligible for duty drawback. If your company imports a Chinese component and conducts manufacturing operations in the United States in which that imported component becomes part of an exported product, you may be eligible for duty drawback. Duty drawback allows a company to recover effectively 99 percent of the duties paid on imported components manufactured into goods that are subsequently exported.

Take advantage of exclusion opportunities. If the List 3 tariffs are increased, USTR may initiate a process by which companies can request exclusions for products on List 3. That exclusion request process would likely be similar to the processes for Lists 1 and 2. Those requests required a physical description of the product, the HTS code, and the annual quantity and value of the product purchased from China for the last three years, along with policy advocacy in favor of exclusion.

In summary, while the increase from 10 to 25 percent tariffs on List 3 goods from China has been postponed, the burden of the existing tariffs continues to be extensive. Nevertheless, there are some ways for companies to cope. Your team of international trade attorneys at Sheppard Mullin is at your disposal to help.

]]>https://www.globaltradelawblog.com/2019/03/01/trump-trade-war-tariffs-likely-increase-ustr/feed/0https://www.globaltradelawblog.com/2019/03/01/trump-trade-war-tariffs-likely-increase-ustr/New Year Sanctions Roundup: Where Do We Stand?http://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/tvynQtzxxFM/
https://www.globaltradelawblog.com/2019/01/15/new-year-sanctions-roundup/#respondTue, 15 Jan 2019 17:40:37 +0000https://www.globaltradelawblog.com/?p=2639Continue Reading]]>Happy new year everyone. The government is shut down, but there has already been a flurry of activity in 2019 on the economic sanctions and embargoes front. Here is a summary of where we stand on various sanctions regimes.

Russia. On January 10, 2019, the Trump administration defended its decision to ease U.S. sanctions against companies connected to the Russian oligarch Oleg Deripaska. In 2017, the “Countering America’s Adversaries Through Sanctions Act” (CAATSA) passed Congress overwhelmingly and was signed into law by President Trump. As we blogged here and here, CAATSA codified strict Russia sanctions. It also allows Congress to block any termination of sanctions by the Executive. In December 2018, the Treasury department announced that it would lift sanctions on three of Deripaska’s companies: EN+ group, Rusal, and JSC EuroSibEnergo. Though Deripaska would continue to be subject to sanctions personally, Secretary Mnuchin reportedly told members of Congress in a briefing that the three companies had committed to “significantly diminish Deripaska’s ownership and sever his control.” Many lawmakers left the briefing unimpressed, and expressed concern that lifting sanctions would result in a tremendous financial benefit to Deripaska, whose designation by Treasury for sanctions last year reads like a mafia indictment. For now, it is unlikely that Congress is united enough to use its CAATSA powers to maintain the sanctions in the face of the Administration’s decision to lift them. But it is clear that Congressional Democrats intend to exercise their oversight powers when it comes to sanctions (or lack thereof) against Russia.

Iran. On January 9, 2019, Iran’s Supreme Leader said that the re-imposed U.S. sanctions against Iran “do put pressure on the country and the people.” Iran’s economy has been unstable in recent months, particularly due to fluctuations in the Rial. The next day, the Iranian Oil Minister said that Tehran would not comply with the “illegal” U.S. sanctions. And the Iranian Foreign Minister has recently commented on Iran’s positive economic ties with other countries, including India, expressing confidence in countering U.S. sanctions – which he also described as illegal. While U.S. sanctions clearly impact Iran’s economy, it is also clear that Iran has been reaching out to the international community, working to generate sympathy for the position that re-imposition of U.S. sanctions runs counter to UN Security Council Resolutions.

North Korea. At his New Year’s conference on January 10, 2019, South Korean President Moon Jae-in said that North Korean leader Kim Jong-un’s visit to China means that a second summit between the United States and North Korea is imminent. Since the first summit in June 2018, talks regarding denuclearization have stalled. Moon supports inter-Korean economic cooperation that would bolster economic growth in both the North and South. In his New Year’s conference, he indicated that South Korea will resume factory projects in the North Korean city of Kaesong, and stated that and South Korean tours to the North’s Diamond Mountain would resume, but not until international sanctions are lifted.

Venezuela. On January 8, 2018, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) added approximately thirty individuals and entities to its List of Specially Designated Nationals (SDN List) pursuant to Executive Order 13850 for their roles in corrupt currency-exchange transactions that generated $2.4 billion in illicit proceeds for Venezuela. Among those sanctioned include persons allegedly involved in a scheme to bribe the Venezuelan Office of the National Treasury to conduct foreign exchange operations that enriched certain exchange houses. OFAC stated that the designations “target individuals who took advantage of a corrupt system within the Venezuelan ONT, stealing billions of dollars from the Venezuelan people since 2008.”

Syria. On January 8, 2018, Senate Democrats refused to vote on a bill introduced by Florida Republican Marco Rubio that included provisions directing the Trump Administration to impose additional sanctions on entities conducting business with the Syrian President Bashar al-Assad’s government. The legislation followed President Trump’s announcement about withdrawing troops from Syria. The bill, backed by Republican lawmakers, also included additional foreign aid for Israel, and provisions that would let state and local governments refuse to conduct business with companies that boycott Israel. Democrats blocked debate of the legislation and have indicated that they will not consider any legislation for debate that does not end the shut-down.

We expect sanctions will continue to evolve rapidly in 2019. And as always, we will keep you updated on developments.

Emerging technology sectors are being reviewed now for new export controls that could take effect in 2019 (list below).

You may submit comments on the criteria the U.S. government will use to determine what technologies are subject to export controls.

The deadline for comments has been extended to January 10, 2019.

We can help.

Background:

As we reported here, the U.S. government has published an invitation to comment on the criteria for establishing new export controls on what it calls “emerging and foundational technologies.” The list of technology fields targeted for review is as follows:

Biotechnology

Artificial intelligence (AI) and machine learning technology

Position, Navigation, and Timing (PNT) technology

Microprocessor technology

Advanced computing technology

Data analytics technology

Quantum information and sensing technology

Logistics technology

Additive manufacturing

Robotics

Brain-computer interfaces

Hypersonics

Advanced Materials

Advanced surveillance technologies

Why Comment?

If your company makes products or creates any know-how in any of these sectors, new export controls could limit your exports and restrict your ability to disclose know-how to foreign nationals, even within the United States, even within your own company.

You may submit public comments on the proposed rule. The current deadline for submission is now Thursday, January 10, 2019. The government announced the extension of the deadline today (December 11, 2018) in a public meeting of the U.S. Department of Commerce Regulations and Procedures Technical Advisory Committee (RPTAC).

Your Sheppard Mullin export control team is standing by to help you formulate the arguments that may limit the impact of these regulations on your business.

]]>https://www.globaltradelawblog.com/2018/12/11/comment-deadlin-export-controls-on-emerging-technologies/feed/0https://www.globaltradelawblog.com/2018/12/11/comment-deadlin-export-controls-on-emerging-technologies/The Traps of a CFIUS Like EU FDI Screening Mechanismhttp://feeds.lexblog.com/~r/GlobalTradeLawBlog/~3/xOckO2oLkLQ/
https://www.globaltradelawblog.com/2018/11/29/eu-fdi-screening-mechanism-member-states/#respondThu, 29 Nov 2018 17:28:14 +0000https://www.globaltradelawblog.com/?p=2621Continue Reading]]>Finally, the much awaited harmonized screening framework of foreign investments into the EU (Regulation 2017/0224) has been agreed upon on 20 November 2018 by the EU Parliament, the Council and the Commission.

The agreed package will ensure that the EU and its Member States are equipped to protect their “essential interests” while remaining “one of the most open investment regimes” in the world. Protecting an open economy may sound like a comical oxymoron, but the press release of the European Commission on this topics does make for an amusing read!

Before discussing the proposed framework, let’s talk about the elephant (or should we say panda) in the room, which is China. Here are some facts about recent Sino-European economic developments. The EU is today China’s largest trading partner with over EUR 1.5 billion in daily bilateral trade. In this balance the EU is seeing a massive deficit of EUR 180 billion. European companies in search for cheap production have, for decades, been the prime investors in China. However, since 2014, the flow of investments has turned, as China is now positioning itself as one of the world’s largest exporters of capital. A depressed European economy – post euro crisis – has sparked a Chinese shopping spree for assets on the cheap. From wineries in Bordeaux, to the Piraeus in Athens, Hinkley Point in the UK to the top German tech giant Kuka, Chinese investments are multiplying and European governments often feel defenseless.

Germany recently initiated its own FDI screening mechanism and France and the UK quickly followed suit. Some 14 Member States have some kind of foreign investment screening mechanisms in place. Countries like Italy, France and Germany have increased their pressure on the EU Commission in 2017 to act swiftly and to adopt stricter, harmonized screening rules across the EU. Their main concerns are (1) the increase in Chinese acquisitions in security sensitive industries; (2) the asymmetrical investment restrictions, or a lack of reciprocity in market openness by China; (3) the prominent role of Chinese state-owned enterprises fueling oversees investments; (4) anxiety related to the potential economic harm by Chinese investments, and more broadly; (5) a renewed realism in the relations with China.

Not all EU Member States share those concerns. As a matter of fact, many were quite eager to receive badly needed Chinese investments. Other Member States were more principled about not following the US protectionist example. This EU – Chinese investment dilemma within the EU has now given birth to what we might call a rather watered down FDI review process.

The Commission was originally reluctant to institute a CFIUS-like approach to foreign investments in the EU, for fear of “sending the misleading signal that the EU is stepping back from its commitment to an open investment regime”. During the 19th EU-China Summit in 2017, however, it became clear that EU leaders adopted a more assertive tone, notifying China of their discomfort. And EU Trade Commissioner Cecilia Malmström joined their more belligerent statements by adding that “Trade cannot simply be free. It must also be fair”.

So what is the new EU screening framework of foreign direct investments into the EU?

The idea behind the new Regulation is that the EU and its Member States should have a say and retain the control over:

strategic assets such as nuclear power plants;

the production of critical defence inputs (such as military chips)

the transfer of sensitive technology or know-how to a foreign country whose hostile intent cannot be excluded; and

espionage, sabotage or other actions of a disruptive nature.

The Regulation does not require EU Member States to implement a foreign investment screening mechanism. However, where such a mechanism exists or is to be adopted at the Member State level, the Regulation aims to ensure that it meets certain basic screening requirements, such as judicial review of decisions, non-discrimination between different third countries and transparency. Furthermore, the new Regulation establishes a cooperation mechanism between Member States and the Commission in case a foreign investment could affect the security or public order. It also allows the EU Commission, on the same grounds, to initiate a screening if it deems it necessary to protect against threats posed by the investment to projects or programs of “Union interest”. The latter may introduce uncertainty for investors – similar to CFIUS– as the EU Commission will have the authority to review and block investments, and even potentially unwind, closed investment transactions.